Friday, September 7, 2012

It's not pretty out there. The U.S. labor force participation rate has fallen to the lowest level since 1981. Part of the decline is from baby boomers starting to retire and part the result of a super-regulated economy, which results in fewer firms hiring above current minimum wage levels--combined with government handouts (including student loans) that keep people out of the workforce.

5 comments:

Has there been galtification, too? Perhaps not in the way that Alisa Rosenbaum fantasized about her favorite protagonist. Of course, to expect it would be to have taken her story a little too literally. It's also important to recall that in Greek myth, Atlas was a criminal punished for his pridefulness, although we can reconcile the problem by abandoning the premise that Galt should be counted as a hero. He was, after all, in a very big a hurry to return to the world that he'd just turned upside down, perhaps to bankrupt the power companies whose distribution networks he coveted.

It seems that Rand never appreciated the ironic title given to her novel. Still, this little wrinkle does not vitiate the condemnation of looters and the riggers of commerce. In fact, the novel did mention that many people dropped out even though they were never visited by Galt, and I believe that a few talented people might be so disgusted and repelled by the dominant culture of this universe, too, that they drop out. May there be millions more who do so.

It just hit me that guaranteed student loans are another unseen incentive to leave the work force vs. the seen aspect of "making education affordable" (sic). With no accountability for those loans, you're potentially educating a workforce in areas that have little or no demand for work. The government lowers the participation rate, therefore lowering the unemployment rate, at the same time they are misallocating resources and creating a debt burden that is going to have an extremely high default rate.

There are at least two fraudulent outcomes here that the super majority of the public gets duped on. Amazing!! An epiphany from just 3 words inserted at just the right place in a sentence!

Yes, I'm 4 months behind the curve, but considering I just started reading the blog in earnest last month, maybe not so much. ;^)

I guess my epiphany is really more subtle, which is the unseen aspect of the federal government subsidizing student loans is causing a misallocation of resources because the government doesn't qualify how the student loans are to be used. That misallocation is not only the direct money aspect, but also the education aspect of areas that students select that are in low demand. You've actually incentivized the creation of an unemployable subset of the workforce.

How do you quantify that to show the "cost" and get the point across?! Something like the cost of loans plus interest rate discounted by the probability of default, then considering the amount of salary of employment in demand and subtract "misallocated" lower salary. You'd probably want to throw in any unemployment benefits or entitlement costs of those who are not employed after graduation too.

Despite all the trillions in money printing, borrowing, and "stimulus," the recession has not ended. Only the huge number of people dropping out of the labor force has allowed the unemployment rate to drop. I forget the name of the economist who did the calculation, but I heard that if the labor participation rate was just 3% higher, at around 66%--a very low rate of labor participation historically--the unemployment rate would be above 11% right now. Also, the official underemployment rate, which isn't talked about much in the media, has been around 15-16% for years now.